Micro 45 wage determination

Question 1

Where is the equilibrium wage rate and employment level found?

Answer 1

Where demand = supply

Question 2

When are wages likely to be high?

Answer 2

• Supply is inelastic.
• Demand is inelastic.
• Supply is low.
• Demand is high.

Question 3

Explain why cosmetic surgeons earn more than hairdressers?

Answer 3

• Supply of surgeons is low and inelastic (degrees/qualifications/time).
• Supply of hairdressers is higher and elastic, so less wages.
• Demand for surgeons is inelastic as less substitutes.
• Demand for surgeons is high because their MRP and that’s because their MPP is high - excess demand so higher wages in short run.

Question 4

What are 3 other factors that influence wages?

Answer 4

1. Government policy - increase teachers and nurses wages.
2. Public opinion.
3. bargaining power - strong union.

Question 5

Use the 3 factors to explain why surgeons get paid more?

Answer 5

• Surgeons have better public opinion as they are perceived to be more skillful.
• NHS surgeons are paid by the govt and are higher.
• The british medical association represents doctors in the UK and have lots of power.

Question 6

why does the wage differential between skilled and unskilled workers exist?

Answer 6

Skilled - lower supply and higher demand. Supply and demand is inelastic.
Unskilled - opposite.

Question 7

why does the wage differential between men and women exist?

Answer 7

• social norms, culture, history.
• Lots of women work in the service sector for lower pay. Eg: Retail because they need to take care of children and retail jobs are more flexible.
• Women are more likely to work part time.
• Most women work in industries that have low union density. Unlike men who work is industries like manufacturing where union density is higher because their job has safety concerns, and so wages are higher.
• Men have more geographical mobility.
• Women experience more hysteresis.

Question 8

Why does the wage differential between ethnicities exist?

Answer 8

White workers usually earn more than ethnic groups.
- Perceived demand for ethnic workers is lower.
- Ethnic minorities work is narrow range of professions like taxi drivers and corner shops.

Question 9

Define union density?

Answer 9

measures the proportion of workers in unions in an industry.